Larry's Tax Law

Temporary Rules Keep Rolling in

The Oregon Department of Revenue (the “Department”) recently issued four new temporary rules relative to the Oregon Corporate Activity Tax (the “CAT”).  The new rules went into effect on February 1, 2020.    

The new temporary rules provide much needed guidance with respect to three notable exclusions from the fangs of the CAT, namely the Grocery Exclusion, the Wholesale Exclusion and the Vehicle Exclusion.

On April 17, 2019, Treasury issued its second installment of proposed regulations relating to Qualified Opportunity Zones (“QOZs”). The regulations are 169 pages in length, and (as suspected) are fairly complex. Nevertheless, Treasury addresses a significant number of important QOZ issues.

We will dive into the proposed regulations in some detail in subsequent blog posts. In this post, however, we provide a high-level overview of some of the more significant provisions in the proposed regulations.

As reported on March 8, 2017, the U.S. Tax Court issued a taxpayer-friendly decision in Estate of George H. Bartell, et. al. v. Commissioner, 147 TC 5 (June 10, 2016).  The ruling seemed too good to be true. I advised readers to proceed with caution!

Many taxpayers, exchange accommodators, and real estate professionals have been touting the ruling as a clear green light for reverse parking exchanges exceeding the 180-day period pronounced in Revenue Procedure 2000-37 despite the facts that:

• • Judge Gale of the U.S. Tax Court clearly said in the opinion that the court was not giving any opinion with respect to reverse exchanges that exceed the 180-day safe harbor; and
  • The Bartell case involved transactions that pre-dated the effective date of Revenue Procedure 2000-37 and Treasury’s issuance of the deferred exchange regulations.

In most areas of law, substance prevails over form. Code Section 1031 is possibly one of the few exceptions to this time-honored rule of jurisprudence. Under Code Section 1031, form may prevail over substance. The U.S. Tax Court’s decision in Estate of George H. Bartell, et. al. v. Commissioner, 147 TC 5 (June 10, 2016), supports this thesis.

Estate of George H. Bartell et. al. v. Commissioner

Case Background

The facts of the case are fairly straightforward. Bartell Drug, an old family-owned chain of retail drugstores located in the state of Washington, was owned by the petitioner and his two children. In 1999, the company entered into an agreement to purchase a parcel of land upon which it intended to build a new drugstore (“Replacement Property”). Bartell Drug had a store located on a property it owned in White Center, Washington, and it anticipated selling this property (“Relinquished Property”) to fund, in part, the cost of the Replacement Property. In order to lawfully avoid paying taxes on the gain from the sale of the Relinquished Property, the stage was set for an exchange of real property that would qualify for tax deferral under Code Section 1031. A few obstacles, however, stood in the taxpayer’s way, namely: (i) the Replacement Property was found by the taxpayer before a buyer for the Relinquished Property could be found; (ii) the Replacement Property was land without the improvements needed to operate a drugstore (i.e., a building); and (iii) in order to defer all of the gain from the sale of the Relinquished Property, the taxpayer would need to buy the Replacement Property once it was improved.